Focus On Profits, Not Profitability – Tiffany, like most retailers, suffers from
that age-old retailer-plague: a focus on top-line growth at
the expense of bottom-line health. A drive to
expand both product lines (anyone remember the Return to
Tiffany’s lower-market push a decade ago? – but more on that
below) and consumer markets has stretched the luxury retailer
thin, driving up revenue while sharply cutting into gross
margins. This strategy –one employed by almost every
retailer, regardless or size or product, at one time or
another – often results in strong revenue numbers which,
during “good” times, mask shrinking margins, which means a
weaker financial structure.

Positioning: Full confession: this observation leans more
qualitative than quantitative. Approximately 10 years
ago, Tiffany bombarded a newly-affluent domestic (and global)
middle class with the “hot” Return to Tiffany’s segment - a
line of “reasonably” affordable jewelry pieces (starting at
approximately $100/item), which gave consumers a glimpse of
the experiential Tiffany lifestyle without the Tiffany
price-tag. Gone, then, were the days of this exclusive
retailer, replaced by “man-on-the-street” access. In
short, Tiffany no longer possesses that “perfect sheen” of
the untouchable – and I, in turn, can say personally that
should I find an extra $10K+ in my wallet set aside for
luxury jewelry, I’ll think twice before plunking down for an
item from the store hawking $100 bracelets in lieu of hitting
up Bulgari, etc.

So what’s the answer to Tiffany’s earnings blues? Like many
retail clients with shrinking profit margins we here at ACM
Partners work with, Tiffany must first shrink its revenues to
expand its profits. Furthermore, a reassessment of product
placement and strategy, combined with a reevaluation of expansion
into the European market, would undoubtedly do wonders for the
struggling retailer. Either way, let’s hope the shine
returns to the grand-daddy of American jewelers.

Margaret Bogenrief is a partner with ACM Partners, a
boutique crisis management and distressed investing firm
serving companies and municipalities in financial
distress. She can be reached at
margaret@acm-partners.com.